As the song goes, “Regrets…I’ve had a few…” And I have. But bankruptcy isn’t one of them. It’s not that I’ve never filed for bankruptcy; I have. But while I might regret the financial mistakes I made leading up to bankruptcy, I don’t regret filing. It gave me a chance to start over and prove to myself that I’ve learned from my mistakes.
Okay, enough about me. You’re here to find out if bankruptcy is an option for you. It’s an option, just like any kind of debt help, including debt consolidation, debt settlement, mortgage assistance, tax debt help, student loan assistance…you get the idea. Most people don’t want to file for bankruptcy because of the stigma associated with it, so why not reframe the situation? When you look at bankruptcy as the only legal option to eliminate your debt and get protection from your creditors, you can see it in a whole new light. There is no doubt that in most situations, filing bankruptcy is the fastest way out of debt for the least amount of money. It gets you back to saving for retirement quickly and the overwhelming number of bankruptcy filers learn from the experience and never file bankruptcy again.
Bankruptcy can even eliminate many types of student loan debt.
When people file for bankruptcy due to unsecured debts like credit card debt and medical bills, they have the option of filing for Chapter 7 bankruptcy, which appears on your credit report for 10 years, or Chapter 13 bankruptcy, which appears on your credit report for seven years. But so what. Studies show us that people who file bankruptcy do better financially than those who don’t. Don’t assume bankruptcy is a financial death sentence.
What’s the Difference?
For one thing, timing. Under a Chapter 13 bankruptcy, if you have a steady job, you can repay some or all of your debt over a period of 3-5 years. An advantage of Chapter 13 is that you will not lose your house, provided you continue making your mortgage payments. It also provides you with protection from creditors and collectors and it can be a big benefit if cosigners are involved on things like student loans.
Under a Chapter 7 filing, your debts are completely wiped out (discharged) in about 90 days. You will be required to report any non-exempt property that you own as well as a detailed list of how much you spent in the last two years, what your income is, your living expenses, debts owed and anything you sold or gave away. Why? Because in a limited number of cases you might have to give up some of your personal property that is considered non-exempt in an effort to help repay some of your debts that are being discharged. It rarely happens.
Can Bankruptcy Wipe Out My Tax Debt?
Here’s the annoying answer you probably don’t want to hear: it depends. Certain tax debt can be discharged, but other kinds cannot. A tax advisor or your bankruptcy attorney can answer that for you. If tax debt help is the only reason you are considering bankruptcy, they may steer you otherwise.
Because everyone’s credit situation is different, your bankruptcy attorney will review your situation to see what options are best for you.